With the rise of identity theft, the IRS has also seen a rise in the number of tax return-related complaints filed by taxpayers - individuals and businesses alike.

Taxpayers must use Form 14039, Identity Theft Affidavit, in either of these cases:

If someone has filed a fraudulent return using the taxpayer's Social Security number; or
If the taxpayer's financial information has been compromised, even if they have not yet specifically had tax-related identity theft problems.

The IRS will flag a taxpayer's account if a Form 14039 is filed, in the hopes that if someone tries to file fraudulently on the taxpayer's account, the IRS will catch the return and stop it from being processed. In some cases, Form 14039 is requested by IRS after the taxpayer's account has been flagged.

When a fraudulent return is filed, the affected taxpayer faces significant delays while the IRS rectifies the situation. The wait time can be beyond six months to fix the taxpayer's account and issue refunds after a fraudulent return is suspected to have been filed.

Business identity theft on the rise

Businesses affected by identity theft may be hit with huge employment tax bills related to fictitious income on false Forms W-2.

A business's Employer Identification Number (EIN) could be obtained by a thief from the following sources:

Filings made to the Securities and Exchange Commission (SEC) such as the Form 10-K, which includes the EIN on its first page;
Public databases that enable users to search for business entities, which sometimes also display the employer's EIN;
Websites specifically designed to search for EINs, such as EINFinder.com;
Business websites, which sometimes openly display the EIN; and
Forms W-2, W-9, or 1099.

Examples of how a thief might use a business's information include:

Reinstating a dissolved corporation and filing a tax return in the corporation's name, claiming various business credits and obtaining a refund; and
Stealing an EIN and issuing fraudulent W-2s, and then filing returns requesting refunds based on this income, which could trigger an assessment for unpaid payroll taxes on these fraudulent wages.